Survey shows rising demand for loans

Post was last updated: March 4, 2019

By Taonga Sabola:

The latest Bank Lending Survey by the Reserve Bank of Malawi (RBM) has revealed that demand for loans went up between July and December 2018.

Results of the study have revealed that the increase in the demand for loans and credit lines emanated from all economic agents such as households, small and medium enterprises (SMEs) and large enterprises.

It says the increase in the demand for loans by households was mainly due to improved consumer confidence, increase in consumption expenditure and housing market prospects in a relatively stable macro-economic environment.

With regard to SMEs, the major contributing factors for the perceived increase were inventory and working capital requirements, fixed capital investments and stable macro-economic environment.

For large enterprises, the study says banks cited fixed asset acquisition as well as inventory and working capital requirements as some of the drivers for the increase in the demand by large enterprises.

The survey results show that existing and new customers were perceived to have contributed to increase in demand for loans and credit lines.

“The majority of banks perceived an increase in short-term loans, similar to the March 2018 survey. Meanwhile, perceptions regarding the demand for long-term loans was mixed as some banks reported that it increased whilst others indicated that it remained unchanged,” RBM says.

With regard to credit supply conditions, the majority of banks indicated that credit approval standards and conditions generally continued to tighten, particularly for large enterprises.

“This notwithstanding, credit standards and conditions were tighter for SMEs compared to households. Most banks cited bank’s margin on riskier loans, costs related to bank’s capital position, maturity of the credit provided, and size of the loans as the major factors affecting supply conditions,” RBM says.

According to the results, most responding banks anticipate credit standards and conditions to remain unchanged, though tight, over the next six-month period to June 2019.

A number of factors were cited to likely influence this outlook, among which are; initiatives undertaken by banks to increase loan extensions to SMEs, use of improved data from credit reference bureaus, working capital needs, fixed capital acquisition and increased economic activity in the run-up to 2019 general elections.

The survey results revealed that the majority of banks indicated that non-performing loans (NPLs) in the banking system decreased during the survey period. The decrease was perceived to be mainly in the household and SMEs sectors and largely due to write offs.

The sector perceived to have the highest level of NPLs was manufacturing followed by transportation.

The survey was conducted by administering a qualitative questionnaire to all nine banks in Malawi. The response rate was 100 percent.

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